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Cerner Reports Second Quarter 2014 Results

(July 24, 2014)

KANSAS CITY, Mo., July 24, 2014 (GLOBE NEWSWIRE) -- Cerner Corporation (Nasdaq:CERN) today announced results for the 2014 second quarter that ended June 28, 2014, delivering strong levels of bookings, revenue, earnings, and cash flow.



Bookings in the second quarter of 2014 were $1.08 billion, an all-time high for a second quarter and an increase of 15 percent compared to second quarter 2013 bookings of $935.0 million.  



Second quarter revenue was $851.8 million, an increase of 20 percent compared to $707.6 million in the year-ago period.


On a U.S. Generally Accepted Accounting Principles (GAAP) basis, second quarter 2014 net earnings were $129.0 million and diluted earnings per share were $0.37. Second quarter 2013 GAAP net earnings were $112.9 million and diluted earnings per share were $0.32.   




Adjusted (non-GAAP) Net Earnings



Adjusted net earnings for second quarter 2014 were $138.9 million, compared to $119.6 million of adjusted net earnings in the second quarter of 2013. Adjusted diluted earnings per share were $0.40 in the second quarter of 2014, an increase of 18 percent compared to $0.34 of adjusted diluted earnings per share in the year-ago quarter. Analysts' consensus estimate for second quarter 2014 adjusted diluted earnings per share was $0.40. 



Adjusted net earnings is not a recognized term under GAAP and should not be substituted for net earnings as a measure of Cerner's performance but instead should be utilized as a supplemental measure of financial performance in evaluating our business. Following is a description of adjustments made to net earnings. For more detail, please see the accompanying schedule, titled "Reconciliation of GAAP Results to Non-GAAP Results."



Second quarter 2014 adjusted net earnings and diluted earnings per share exclude share-based compensation expense, which reduced second quarter 2014 net earnings and diluted earnings per share by $9.9 million and $0.03, respectively. Second quarter 2013 adjusted net earnings and diluted earnings per share exclude share-based compensation expense, which reduced net earnings and diluted earnings per share by $6.7 million and $0.02, respectively.



Other 2014 Second Quarter Highlights:




  • Second quarter cash collections of $843.8 million and operating cash flow of $248.3 million.


  • Second quarter free cash flow of $143.8 million. Free cash flow is a non-GAAP financial measure defined as GAAP cash flows from operating activities less capital purchases and capitalized software development costs. For more detail, please see the accompanying schedule, titled "Reconciliation of GAAP Results to Non-GAAP Results."


  • Second quarter days sales outstanding of 66 days, which is down from 68 days in the year-ago quarter.


  • Total backlog of $9.69 billion, up 21 percent over the year-ago quarter. This was comprised of $8.88 billion of contract backlog and $806.6 million of support and maintenance backlog.



"Our outstanding second quarter results reflect Cerner's strong position in a growing industry," said Neal Patterson, Cerner chairman, CEO and co-founder. "Health care providers face a growing list of measures and mandates that are putting pressure on them to lower costs while also improving quality. We believe information technology is the biggest lever to help them address these challenges, and we are continuing to invest heavily in R&D to not only help providers navigate the current environment, but also prepare them for the future."



Future Period Guidance



Cerner currently expects:




  • Third quarter 2014 revenue between $840 million and $870 million.


  • Full year 2014 revenue between $3.3 billion and $3.4 billion, which is up from a prior range of $3.25 billion to $3.4 billion.


  • Third quarter 2014 adjusted diluted earnings per share before share based compensation expense between $0.41 and $0.42. 


  • Full year 2014 adjusted diluted earnings per share before share based compensation expense between $1.64 and $1.67, which is up from a prior range of $1.63 to $1.67.


  • Third quarter 2014 new business bookings between $1 billion and $1.1 billion.


  • Share based compensation expense to reduce diluted earnings per share by approximately $0.03 in the third quarter of 2014 and between $0.11 and $0.12 for the year.



Earnings Conference Call



Cerner will host an earnings conference call to provide additional detail on these results at 3:30 p.m. CT on July 24. The dial-in number for the conference call is (617)-614-4909; the passcode is Cerner. Cerner recommends joining the call 15 minutes early for registration. The re-broadcast of the call will be available from 6:30 p.m. CT, July 24 through 11:59 p.m. CT, July 27. The dial-in number for the re-broadcast is (617)-801-6888; the passcode is 98537092.



An audio webcast will be available live and archived on Cerner's website at www.cerner.com under the About Cerner section (click Investor Relations, then Presentations and Webcasts).



About Cerner



Cerner's health information technologies connect people, information, and systems, at approximately 14,000 facilities worldwide. Recognized for innovation, Cerner solutions assist clinicians in making care decisions and enable organizations to manage the health of populations. The company provides clients with a wide range of in-house services, as well as an integrated clinical and financial system to help organizations manage revenue. Cerner's mission is to contribute to the systemic improvement of health care delivery and the health of communities. Nasdaq: CERN. For more information about Cerner, please visit www.cerner.com, check out our blog at www.cerner.com/blog and connect with us on Twitter at http://www.twitter.com/cerner and on Facebook at www.facebook.com/cerner.



Certain trademarks, service marks and logos set forth herein are property of Cerner Corporation and/or its subsidiaries. All other non-Cerner marks are the property of their respective owners.



This release contains forward-looking statements that involve a number of risks and uncertainties. It is important to note that Cerner's performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. The words "guidance", "expects", "will" or the negative of these words, variations thereof or similar expressions are intended to identify such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the possibility of product-related liabilities; potential claims for system errors and warranties; the possibility of interruption at our data centers or client support facilities; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others; risks associated with our non-U.S. operations; risks associated with our ability to effectively hedge exposure to fluctuations in foreign currency exchange rates; the potential for tax legislation initiatives that could adversely affect our tax position and/or challenges to our tax positions in the United States and non-U.S. countries; risks associated with our recruitment and retention of key personnel; risks related to our dependence on third party suppliers; risks inherent with business acquisitions and combinations; the potential for losses resulting from asset impairment charges; risks associated with volatility and disruption resulting from global economic conditions; managing growth in the new markets in which we offer solutions, health care devices and services; changing political, economic, regulatory and judicial influences; government regulation; significant competition and market changes; variations in our quarterly operating results; potential inconsistencies in our sales forecasts compared to actual sales; volatility in the trading price of our common stock and the timing and volume of market activity; our directors' authority to issue preferred stock and the anti-takeover provisions in our corporate governance documents; and material adverse resolution of legal proceedings. Additional discussion of these and other risks, uncertainties and factors affecting Cerner's business is contained in Cerner's periodic filings with the Securities and Exchange Commission. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. Cerner undertakes no obligation to update forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.








































































































































































































































































































































































CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and six months ended June 28, 2014 and June 29, 2013

(unaudited)

 

 

 

 

 

(In thousands, except per share data)

Three Months Ended

Six Months Ended

 

2014 (1)

2013 (1)

2014 (1)

2013 (1)

Revenues

 

 

 

 

System sales

 $ 234,563

 $ 200,503

 $ 441,250

 $ 399,405

Support, maintenance and services

 588,167

 486,647

 1,145,596

 953,203

Reimbursed travel

 29,032

 20,411

 49,677

 34,982

Total revenues

 851,762

 707,561

 1,636,523

 1,387,590

 

 

 

 

 

Margin

 

 

 

 

System sales

 153,257

 128,795

 294,831

 246,214

Support, maintenance and services

 536,136

 452,966

 1,050,224

 888,347

Total margin

 689,393

 581,761

 1,345,055

 1,134,561

 

 

 

 

 

Operating expenses

 

 

 

 

Sales and client service

 343,234

 281,192

 674,135

 548,548

Software development

 97,326

 82,282

 188,871

 163,345

General and administrative

 57,200

 51,831

 112,413

 99,643

Total operating expenses

 497,760

 415,305

 975,419

 811,536

 

 

 

 

 

Operating earnings

 191,633

 166,456

 369,636

 323,025

 

 

 

 

 

Other income, net

 2,737

 2,733

 5,727

 5,777

 

 

 

 

 

Earnings before income taxes

 194,370

 169,189

 375,363

 328,802

Income taxes

 (65,337)

 (56,282)

 (126,804)

 (105,855)

Net earnings

 $ 129,033

 $ 112,907

 $ 248,559

 $ 222,947

 

 

 

 

 

Basic earnings per share

 $ 0.38

 $ 0.33

 $ 0.73

 $ 0.65

 

 

 

 

 

Basic weighted average shares outstanding

 341,788

 343,800

 342,787

 343,976

 

 

 

 

 

Diluted earnings per share

 $ 0.37

 $ 0.32

 $ 0.71

 $ 0.63

 

 

 

 

 

Diluted weighted average shares outstanding

 349,794

 352,485

 351,049

 352,714

 

 

 

 

 

Note 1: Operating expenses for the three and six months ended June 28, 2014 and June 29, 2013 include share-based compensation expense. The impact of this expense on net earnings and diluted earnings per share is presented below:

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share data)

Three Months Ended

Six Months Ended

 

2014

2013

 2014 

 2013 

 

 

 

 

 

Sales and client service

 $ 7,084

 $ 4,898

 $ 14,302

 $ 9,916

Software development

 3,643

 2,946

 6,728

 5,271

General and administrative

 4,477

 3,089

 8,942

 6,972

Total share-based compensation

 15,204

 10,933

 29,972

 22,159

Amount of related income tax benefit

 (5,336)

 (4,242)

 (10,520)

 (8,598)

Net impact on net earnings

 $ 9,868

 $ 6,691

 $ 19,452

 $ 13,561

 

 

 

 

 

Decrease to diluted earnings per share

 $ 0.03

 $ 0.02

 $ 0.05

 $ 0.04




































































































































































































































 

CERNER CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS1

For the three and six months ended June 28, 2014 and June 29, 2013

(unaudited)

 

 

 

 

 

RECONCILIATION OF ADJUSTED NET EARNINGS TO GAAP NET EARNINGS1

 

 

 

 

 

(In thousands)

Three Months Ended

Six Months Ended

 

2014

2013

 2014 

 2013 

Net Earnings

 

 

 

 

Net earnings (GAAP)

 $ 129,033

 $ 112,907

 $ 248,559

 $ 222,947

Share-based compensation expense

 15,204

 10,933

 29,972

 22,159

Income tax benefit of share-based compensation

 (5,336)

 (4,242)

 (10,520)

 (8,598)

Adjusted net earnings (non-GAAP)2

 $ 138,901

 $ 119,598

 $ 268,011

 $ 236,508

 

 

 

 

 

RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE TO GAAP DILUTED EARNINGS PER SHARE1

 

 

 

 

 

 

Three Months Ended

Six Months Ended

 

2014

2013

 2014 

 2013 

Diluted Earnings Per Share

 

 

 

 

Diluted earnings per share (GAAP)

 $ 0.37

 $ 0.32

 $ 0.71

 $ 0.63

Share-based compensation expense (net of tax)

 0.03

 0.02

 0.05

 0.04

Adjusted diluted earnings per share (non-GAAP)2

 $ 0.40

 $ 0.34

 $ 0.76

 $ 0.67

 

 

 

 

 

RECONCILIATION OF NON-GAAP FREE CASH FLOW TO GAAP OPERATING CASH FLOW1

 

 

 

 

 

(In thousands)

Three Months Ended

Six Months Ended

 

2014

2013

 2014 

 2013 

Cash flows from operating activities (GAAP)

 $ 248,271

 $ 176,507

 $ 404,058

 $ 390,155

Capital purchases

 (62,336)

 (85,536)

 (131,997)

 (134,987)

Capitalized software development costs

 (42,122)

 (43,573)

 (86,666)

 (77,907)

Free cash flow (non-GAAP)3

 $ 143,813

 $ 47,398

 $ 185,395

 $ 177,261

 

 

 

 

 

Note 1: The presentation of Adjusted Diluted Earnings per Share, Adjusted Net Earnings and Free Cash Flow, non-GAAP financial measures, are not meant to be considered in isolation, nor as a substitute for, or superior to, Generally Accepted Accounting Principles (GAAP) results and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with Cerner's consolidated financial statements prepared in accordance with GAAP. Adjusted Diluted Earnings per Share, Adjusted Net Earnings and Free Cash Flow may also be different from similar non-GAAP financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculations. We believe that Adjusted Diluted Earnings per Share, Adjusted Net Earnings and Free Cash Flow are important to enable investors to better understand and evaluate our ongoing operating results and allows for greater transparency in the review and understanding of our overall financial, operational and economic performance.

 

 

 

 

 

Note 2: Cerner provides earnings with and without share-based compensation expense because earnings excluding this expense is used by management along with GAAP results to analyze its business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes.

 

 

 

 

 

Note 3: Cerner provides free cash flow because it takes into account the capital expenditures necessary to operate our business.








































































































































































































































 

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 28, 2014 (unaudited) and December 28, 2013

 

 

 

(In thousands)

2014

2013

 

 

 

Assets

 

 

Current assets:

 

 

Cash and cash equivalents

 $ 315,260

 $ 202,377

Short-term investments

 673,532

 677,004

Receivables, net

 614,930

 582,926

Inventory

 31,710

 32,299

Prepaid expenses and other

 175,074

 175,488

Deferred income taxes, net

 92,763

 91,614

Total current assets

 1,903,269

 1,761,708

 

 

 

Property and equipment, net

 863,684

 792,781

Software development costs, net

 384,813

 347,077

Goodwill

 324,108

 307,422

Intangible assets, net

 137,069

 144,132

Long-term investments

 478,963

 554,873

Other assets

 173,369

 190,371

Total assets

 $ 4,265,275

 $ 4,098,364

 

 

 

Liabilities and Shareholders' Equity

 

 

Current liabilities:

 

 

Accounts payable

 $ 148,854

 $ 145,019

Current installments of long-term debt and capital lease obligations

 59,287

 54,107

Deferred revenue

 228,166

 209,746

Accrued payroll and tax withholdings

 141,160

 147,986

Other accrued expenses

 95,055

 83,574

Total current liabilities

 672,522

 640,432

 

 

 

Long-term debt and capital lease obligations

 96,084

 111,717

Deferred income taxes and other liabilities

 229,083

 170,392

Deferred revenue

 7,817

 8,159

Total liabilities

 1,005,506

 930,700

 

 

 

Shareholders' Equity:

 

 

Common stock

 3,457

 3,443

Additional paid-in capital

 865,386

 812,853

Retained earnings

 2,641,607

 2,393,048

Treasury Stock

 (245,333)

 (28,251)

Accumulated other comprehensive loss, net

 (5,348)

 (13,429)

Total shareholders' equity

 3,259,769

 3,167,664

Total liabilities and shareholders' equity

 $ 4,265,275

 $ 4,098,364

CONTACT: Investor Contact: Allan Kells
(816) 201-2445, akells@cerner.com
Media Contact: Kate O'Neill Rauber
(816) 888-2880, c_oneillrauber.kate@cerner.com
Cerner's Internet Home Page: www.cerner.com

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